Cheaper Homes to See Price Increase Soon

Lower-priced homes have been hit the most during the burst of the housing bubble. And it looked like they are set to rebound as the housing market recovers. In the 12 months through October, the cheapest homes have seen their prices increase 10 percent compared to 7.8 percent for the expensive ones.

Researchers said that the lower you go, the better the performance when it comes to the housing market. All signs indicated strengthening at the low end. Third quarter data showed that the cheapest homes increased 1.7 percent from the second quarter. Most expensive homes got a 1.8 percent increase. The gap between the two narrowed down.

First quarter of 2011 data showed the least expensive homes declined 2 percent from the previous quarter. Most expensive homes fell 1 percent for the same period. The bottom tier in the housing market has been weak but it is starting to recover.

Year-over-year data showed that most expensive homes went up 3.7 percent in October compared to 2.4 percent for the lowest prices homes. Prices for bottom tier homes differ depending on the state. In Phoenix, the lowest price for homes is under $99,650. In San Francisco, the lowest is under $338,950.

Investors buy cheaper homes because they can make money by renting them out. Rentals in Phoenix are almost a third of the sales. The bottom tier homes in the state got 24 percent year over year gain in October compared to just 17 percent for most expensive homes.

Distressed homes got 33 percent of home sales in January 2009. This was their highest level but since then they have dropped to 20 percent of sales in September 2012. Fewer distressed sales have affected the prices of the bottom tier homes because higher income households have the resources to avoid distressed sales.